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Chile central bank expects up to 2.5% coronavirus-driven contraction in 2020

Chile's central bank said it expects the domestic economy to shrink between 1.5% and 2.5% in 2020 due largely to the impact generated by the coronavirus pandemic and global lockdown measures designed to combat the spread of the disease.

The new forecast, which compares to a 0.5% to 1.5% growth expectation published in December 2019, comes after the bank lowered its benchmark interest rate by 125 basis points to 0.5% in roughly two weeks.

In its monetary policy report for March, Banco Central de Chile said an economic contraction that started in the second half of the month will extend into the second quarter.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

The bank expects the economy to start recovering in the third quarter of 2020. It foresees growth of between 3.75% and 4.75% in 2021 and between 3% and 4% in 2022.

The new GDP projections were made "in an environment of even greater uncertainty" than in December 2019, the bank said. "Particularly relevant is the difficulty of estimating how the pandemic will evolve in Chile and the world."

Even before the coronavirus outbreak, Chile's economy was dealing with setbacks generated by widespread social unrest that broke out in October 2019. Furthermore, the price of copper, a key commodity that represents nearly half of total Chilean exports, has been on the decline. GDP contracted 2.1% year over year in the fourth quarter of 2019, its weakest performance in a decade.